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U.S., German Finance Chiefs Downplay Differences

By Associated Press - Apr 9, 2013 at 12:28PM

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Germany, which has Europe's biggest economy, has been a major force in making austerity-led deficit reduction the focus of the 17-nation euro area's crisis response, while Washington has said it would like to see more growth-friendly policies.

BERLIN (AP) -- Germany's finance minister insisted Tuesday that reducing deficits should not hurt economic growth, sticking by his strategy to tackle Europe's crisis despite the new U.S. Treasury secretary's call to boost demand more.

Germany, which has Europe's biggest economy, has been a major force in making austerity-led deficit reduction the focus of the 17-nation euro area's crisis response, while Washington has said it would like to see more growth-friendly policies.

Treasury Secretary Jacob Lew and Finance Minister Wolfgang Schaeuble were, however, keen to downplay differences as they met. Their talks were part of the U.S. official's trip across the region that started Monday at the European Union's Brussels headquarters and the European Central Bank in Frankfurt. He was due to visit France, the eurozone's second-biggest economy, later Tuesday.

Lew said he "made clear our concern that global demand needs to grow, and policies within a country to grow demand are good domestically and it's good for the world economy."

"Policies that would help to encourage consumer demand in countries that have the capacity would be helpful," he told a joint news conference.

Some economists argue that European countries with relatively low debt, like Germany, should increase government spending or cut taxes to boost consumer spending and economic output. That would help offset the economic decline in debt-laden countries, like Spain, which are pursuing tough austerity measures. Berlin has been reluctant to do so.

Lew appeared to find more common ground with French Finance Minister Pierre Moscovici, whom he met Tuesday afternoon. The two men said they agreed on the need to encourage demand in European countries in order to spur growth and reduce unemployment.

While France has cut some spending and significantly increased taxes to close its budget hole, the government in Paris has recently said it would not meet its goal of reducing its deficit to 3 percent of gross domestic product this year -- and that it wouldn't heap on more austerity measures to reach the target.

"It's also a question of cooperation -- politicians have to be more cooperative in Europe -- so that countries in surplus can contribute to the recovery of the entire eurozone," Moscovici said.

That comment seemed aimed at Germany. But earlier in the day in Berlin, Lew sidestepped a question about what else Germany could do to foster growth abroad, saying that every country has its own targets for potential growth -- "but I think it's fair to say that zero is not a good target for anyone and negative is very bad."

Schaeuble renewed his long-standing insistence that the policies Berlin favors are no barrier to growth. Germany argues that getting public finances in order is key to generating long-term growth.

"I often have the impression that there is a misperception," he said. "No one in Europe sees this contradiction between financial policy consolidation and growth ... our conversation did not deal so much with differences that don't exist as such."

He also brushed aside a question about whether the U.S. should reduce its deficit faster, saying that "we trust in the American government" to know what's best for the country. "We in Europe have enough work to do explaining why the situation in Europe is how it is, so we don't need to give the United States advice."

The two ministers also made clear that they have a shared interest in tackling tax evasion.

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